I believe the brain trust behind the Obama White House has made a huge tactical error.

As Rahm Emmanuel likes to say, one should “never waste a crisis” — and the White House has done just that.

There was a narrow window to effect a full regulatory reform of Wall Street, the Banking Industry and other causes of the collapse. Instead, the White House tacked in a different direction, pursuing health care reform.

This was an enormous miscalculation.

I’m not sure who to blame, but the leading suspects (in order) are Larry Summers, Rahm Emmanuel, Tim Geithner, and (perhaps) David Axelrod. Instead of a populist clean up of The Street (ala Eliot Spitzer circa 2,000), Obama advisors allowed a smoldering resentment to take hold and build amongst the electorate. The massive taxpayer wealth transfer to inept, corrupt, incompetent bankers has created huge resentment amongst the populace — regardless of political affiliation.

There was widespread popular support for a full reform of finance. What the White House should have pursued was: 1) Reinstatement of Glass Steagall; 2) Repeal the Commodity Futures Modernization Act; 3) Overturning SEC Bear Stearn exemption allowing 5 biggest firms to leverage up far beyond 12 to one; 4) Regulating the non bank sub-prime lenders; 5) Continuing high risk trades to be compensated regardless of profitibility; 6)  Mandating (and enforcing) lending standards, etc.

All of this could have been accomplished in the first 6 months of the Obama administration. The consumer protection stuff could have been tossed in as well, though it was not the cause of the collapse.

What we got instead, was the usual lobbying efforts by the finance industry. They own Congress, lock stock and barrel, and they throttled Financial Reform. It did not help that the Obama economic team is filled with defenders of the Status Quo — primarily Summers, but it appears Geithner also — the dynamic duo that fiddled while the economy burned.

Such dithering can be fatal to an administration.

This was a colossal blunder.  Passing reform legislation successfully would have fulfilled the campaign promise of “Change;” it would have created legislative momentum. It could have provided a healthy outlet for the Tea Party anger and the raucous Town Hall meetings. It might have even led to a “throw the Bums out” attitude in the mid-term elections, forcing the most radical de-regulators from office.

Also wasted: The enormous anti-Bush attitude throughout the country that swept team Obama into office. He should have been “Hooverized,” and O should have tapped into that same wave to force the greatest set of Wall Street and Banking regulatory reforms seen since the 1930s.

Instead, we have a White House that appears adrift, and the most importantly, may very well have missed the best chance to clean up Wall Street in five generations.

Never waste a crisis, indeed . . .


See also:
Finance Overhaul Falters as ’08 Shock Fades
WSJ, September 9, 2009


Financial reforms stalled as Congress returns
Kevin Drawbaugh
Reuters, Sep 8, 2009 7:46am


US financial regulatory reform remains work in progress
Marc Jourdier
AFP, September 7, 2009


Most Asia economies reform amid crisis-World Bank
Thomson Reuters 09.08.09, 09:24 PM EDT


Category: Bailouts, Politics, Regulation

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

139 Responses to “Tactical Error: Health Care vs Finance Regulatory Reform”

  1. I know this has political overtones —
    Please be civil

  2. [...] Did the POTUS make a huge tactical mistake by pushing for health care reform with much-needed financial reform incomplete?  (TBP) [...]

  3. mjdoyle says:

    Of course, but Wall St wouldn’t like that so then who would finance the Dems’ elections?

  4. BSNEATH says:

    You are entirely on target with your comments.

    How can one not conclude that their is massive collusion between the banking system and the government when absolutely nothing has been done about this?

    The Obama Administration is rapidly alienating a very large sector of the population – the middle class.

    This geyser is super heating below the surface. It only needs a catalyst to blow.

  5. dblwyo says:

    Sad but true. We”ll have to see how it works out…can’t entirely judge by headlines and polls however.

    What is clear is that, on the whole, the Finance Industry is not capable of self-regulation and requires adult supervision. The analogy would be helmet laws, which are indeed public interference in private choice. BUT we pass and enforce helmet laws because private citizens don’t act responsibly but are unwilling to pay for the total public costs, e.g. all those mops, buckets, road repairs, medical bills and other lives lost. Now if motorcyclists wanted to ride helmetless and were required to post a performance bond or buy insurance that covered the total cost then I’d say let them go ahead.

    The really funny thing is that the Industry destroyed almost the last ten years of accumulated profits thru their own malfeasant behaviors; i.e. it would be in the interest of the employees, the firms, the investors and society to ensure better governance. The only people who appear to have benefited are the folks who managed to rack off the bubble profits as private compensation and cost the rest of us $Ts.

  6. danm says:

    Not sure I agree.

    If they had let the financials fail and nationalize what is left over, I gather that even more people would have been pushed from private healthcare to the public system as insurance companies and everything else in the economy would have collapsed. The public health care system would not have been ready for all these people coming on at once and you would have had millions without health care services. I can just imagine the logistics and orthe PR nightmare.

    Once the health care situation is “fixed”, then they can deal with the financials. Anyway by that time, crisis number 2 is surely going to be twisting the government’s arm.

  7. Bruce in Tn says:


    CBS/AP) American families would be fined up to $3,800 for failing to buy health insurance under a plan that circulated in Congress on Tuesday as divisions among Democrats undercut President Obama’s effort to regain traction on his health care overhaul.

    Well, speaking of tactical errors. I agree with the theme of your post, Barry, and now the health care debate has taken a malignant turn. Consider:

    Will there be an income level to save the working poor from the 3800?
    Will the uninsurable be spared?
    Will the 3800 be used to provide health care at a subsistance level for those fined, or merely spent to pay government bills?
    Will the amount fined go up every year, like a COLA?
    Will this be a way to force people to pay for the “public” option?

    …just wondering…

  8. Mikhail Sergeyevich says:

    Barry: You assume this was error, not strategy. There is neither political will nor ability to reform our financial system. Distracting the populace is the surest course to assuring continuance of the system that provides milk and honey – regardless of whether it be extracted via 401k, pension plans, excessive consumer debt, when needed, direct taxation.

    Also, don’t forget, health care “reform is an honestly difficult political issue. There are many that believe the current system is perfectly developed to continue to extract value from the masses at am optimal rate, while others believe that there is room for improving extractive value by adding additional direct tax subsidies now. Don’t expect true healthcare “reform” until it becomes clear that increasing margins for the industry will require additional tax subsidies. On that day, we will surely see bipartisan reform.

  9. for all the “Si, se puede!”-cover, this–as the post, well, lays-out, was too easy to see coming..

    one, only, had to understand who, really, where 44′s largest campaign contributors (WallSt./FinServ)..

    those contribs are, even, paying mighty div.s in “Health Care reform”, as well.

    It is, almost, too bad that the ‘Cained Peep aren’t as stupid as widely thought, for, this equation, 44=43, and then some, is one where Someone’s Ox is fixin’ to get gored.
    Being American is a political distinction. As such, the documents that articulate what it means to be an American, our values and laws, are primarily the Declaration of Independence and the US Constitution.

    Being a proud American means LIVING their values and laws. George Washington admonished Americans to defend our values and law from “the impostures of pretended patriotism.” Abraham Lincoln, considered as one of the world’s most eloquent and powerful writers urged Americans:
    “Let every American pledge his life, his property, and his sacred honor;–let every man remember that to violate the law, is to trample on the blood of his father, and to tear the character of his own, and his children’s liberty. Let reverence for the laws, be breathed by every American mother, to the lisping babe, that prattles on her lap–let it be taught in schools, in seminaries, and in colleges; let it be written in Primers, spelling books, and in Almanacs;–let it be preached from the pulpit, proclaimed in legislative halls, and enforced in courts of justice. And, in short, let it become the political religion of the nation; and let the old and the young, the rich and the poor, the grave and the gay, of all sexes and tongues, and colors and conditions, sacrifice unceasingly upon its altars.”

  10. njdoc says:

    Only in a crisis can you see who has the real power and influence.

  11. RobHoo says:

    It would be nice to be able to do both, regardless of order. A much needed reform to health insurance provision (we aren’t so much talking about “health care” as “health insurance”) is a much more contentious issue. Getting it done early in the election cycle is vital to garnering support (or at least that is the CW).

    I would like to see all of the steps you outlined implemented and banks turned into sleepy utilities that provide money to real businesses, but that pales in importance to health insurance reform. Vigorous enforcement of laws on the books would probably make a big difference. I’m sure anti-trust and RICO could be used to good effect on Wall Street. Let’s start with something like the Pecora commission, get a meaningful health insurance reform through and get back to finance when that report is in.

  12. danm says:

    Anyway, all the measures you want reinstated will only get done when everything has collapsed. As long as the knife is still falling, no one will change the rules. And the knife still has a long way to fall.

  13. vikram8300 says:


    I think there has been a failure to regulate financials, since this will effectively stop the music, and everyone will head for the exits with regard to the stock market, and more importantly US bond markets. If financial regulation were to occur, it appears fairly certain that the Fed would be audited. This audit would produce shocking revelations, i.e. the Fed is lending money to Middle Eastern state owned banks via the window to their US token branches for Non US collateral (bonds issued by Middle Eastern borrowers). It is shockingly easy to call up the Federal Reserve in NY and just ask for money if you have even a branch. The banks in questions simply called up and were able to secure $300 mm financing without the Fed batting an eye and saying sure as long as they have ISINs and CUSIPs. If the standards at the Fed are so poor for granting loans I can’t imagine what type of innovative repos are ocurring with the larger US banking institutions. To add insult to injury these firms are posting huge “accounting” profits and paying themselves ridiculous bonuses. In summary, financial reform won’t occur because too many people will be implicated and a failure of confidence in the US economic system would occur..

  14. madman130 says:

    Couldn’t agree more. Obama could have done so much in regards to “financial cleanup” if he chose to do so. People like me who are ideologically opposed to him would have no hesitation in supporting meaningful wall street clean up. But he blew up big time. This is like Bush going to Iraq after 911. Obama is toast; Wall Street is burning and this guy talks about health care and cap and trade. Priorities, my friend! Never seen this bunch of incompetent boobs in my life.

  15. torrie-amos says:

    Barry, this post is the reason why I read your stuff, every now and then a 3 run homer, lol. Agree 100% major tactical error. Best guess is in there strategy sessions the conclusion was, “well we all know we need WS regulations, yet, right now with growing unemployment, remember feb had 700k, we feel it is too much pressure on a strained situation, we will get too it, let’s focus on some campaign promises”. Back when they were strategizing the stress tests had not even been completed, they wanted the dems in the house and senate to be working on something and since ws reform could not be, they went too work on the other……………It has been a major tactical failure on two fronts, obama wants partisanship and tried working towards it…………………..yet what do the repubs do in there strategy room, “well, in 08 we had an inept president to defend, a silly old man candidate, and a nut job vp, plus the economy imploding, and we had too get mickeyain elected………well, we only got one job too do now, destroy barrack and pick up seats in 2010, we will nod politely smile and him and tell him yes we want too be partisans, and then we will gin up the propaganda of destruction” ……………….democrats in the media love too discuss idea’s and they always have 3-4, republicans they always have one and they scream it from the yardarms until it is acknowledged………….

  16. call me ahab says:

    great post BR-

    the exact sentiments of many people out there including myself

  17. dougc says:

    Our tribal political system, in need of money, will always defend the monied interest. Health care and financial reform will only be a new coat of paint on the same old pig. An example is tobacco legislation and tobacco kills a thousand Americans a day. Compared to bankers and the medical industry ability to donate, tobacco was a light weight.

  18. BSNEATH says:

    I voted for Obama because of two individuals; Larry Summers and Paul Volker. Subsequently to learn that Summers had already been compromised via a part-time $5 million a year gig with a hedge fund and to observe that Volker has all but disappeared from the scene. I can only conclude that Obama used Volker just for the purpose of gaining middle class voters.

    I have lost all confidence in Obama and his administration. He and they appear to be disingenuous, crafty, self-serving and piously arrogant. One might even conclude elitist.

    I really had wanted to like the man, but I guess while you can take the organizer out of the community, you cannot take the activist out of the community organizer…….

  19. danm says:

    Couldn’t agree more. Obama could have done so much in regards to “financial cleanup” if he chose to do so. People like me who are ideologically opposed to him would have no hesitation in supporting meaningful wall street clean up. But he blew up big time.

    This guy was stuck between a rock and a hard place from the very beginning. Can’t anybody see this?

    The entire American is screwed up and it has been in the making for many decades. Can you really expect a guy to fix it in a matter of months?

    No matter what he touches, he will negatively impact other stuff because the economy is like spaghetti. That’s the nature of the beast.

  20. madman130 says:

    danm, the longer you wait the harder it will be.

    More than 90% of americans not only want to see a meaningful clean up of wall street. They also want to see some heads roll. The longer you wait, the harder. In my estimate it’s already too late.

  21. this: Mikhail Sergeyevich Says: September 9th, 2009 at 7:50 am
    Barry: You assume this was error, not strategy. There is neither political will nor ability to reform our financial system. Distracting the populace is the surest course to assuring continuance of the system that provides milk and honey – regardless of whether it be extracted via 401k, pension plans, excessive consumer debt, when needed, direct taxation.

    Also, don’t forget, health care “reform is an honestly difficult political issue. There are many that believe the current system is perfectly developed to continue to extract value from the masses at am optimal rate, while others believe that there is room for improving extractive value by adding additional direct tax subsidies now. Don’t expect true healthcare “reform” until it becomes clear that increasing margins for the industry will require additional tax subsidies. On that day, we will surely see bipartisan reform.

    to me, is a post that should not be overlooked. While, potentially, uncomfortable to accept, We should understand that this incarnation of *our government* is little more than a well-engineered Machine that extracts Liberty and Wealth from Us, as Whitney’s Gin extracted seeds from Bolls..

  22. danm says:

    danm, the longer you wait the harder it will be.


    How old are you?

    Most 45 or younger have not got a clue. Those in the know want it to happen now because they know the day of reckoning will happen in their lifetime.

    But the boomers and older will do whatever it takes to push it off so they don’t have to deal with it in their lifetime.

  23. BSNEATH says:

    @ danm: Sounds to me like you are in line for a nice bonus this year…..

    On a serious note, it is a false argument to say we cannot clean up Wall Street because the economy will fail. There is plenty that can be done to restore faith in the economy and our governmental institutions. Instead there is complete and absolute silence. And in this silence breeds uncertainty, fear and paranoia.

    Obama has lost many of us and he is not going to get us back now with feel good speeches that say what we want to hear while he does what he wants to do. We have already been down that road……..

  24. nanotot says:

    It seems fairly easy to regenerate this crisis when desired. Obama need only say “now might be a good time to sell stocks.” Given the “national securitization” of the economy and Obamas naivete in the world of finance, it seems he has taken a practical approach.

  25. madman130 says:


    Oh please. We were told that this guy was a superman and could fix anything.

    But Seriously, no one is talking about fixing anything in six eight months. Your side should drop this childish accusations any time someone is critcal of your god. 6months is enough to judge how the next few years is going to look like. That is all we are saying. The way this guy is going, he will never fix it. He has no intention at all. Come to think of it, who was the biggest beneficiary of wallstreet last year? Oh, it was the kenyan irish, wasn’t he?

    As a matter fact it has been almost a year he own. So in this time of “crisis”, you would think that they have been working on plans since November 5, but I guess this is too much ask from an elected official in this country.

  26. danm says:

    On a serious note, it is a false argument to say we cannot clean up Wall Street because the economy will fail
    Just like it’s a false argument to say that it will succeed.

    I don’t know if you’ve ever done some cleaning up but it takes much longer than making a mess. And this mess has been in the making for a few decades.

    Secondly, when you fix something you must assume that somebody out there will know how to manage the new entities with a new vision. Who are you going to hire? The ones who made the mess or those from other industries who have no idea how to manage a bank? You’ll probably hire the ones who made the mess and it’s hard to teach an old dog new tricks.

    Thirdly, the financial industry is so pervasive that it is even in you bedroom so yes, if you change the rules, it will touch every aspect of Amercian life. That means many industries will fail and many more will be born. That can be a good thing but the problem is that the largest segment of our population is about to retire and will cling to the status quo before making huge changes.

    I agree that the financial industry needs to be fixed but in practice, it’s going to happen only when government propping up will not work. We’re not there yet. Too many players will hang onto to the status quo.

  27. Wes Schott says:

    …here, here Ritholtz

  28. danm says:


    Look. I don’t care about your presidents and your political parties. I think they are puppets and the mess is so big that it’s not one person that will be able to fix it.

    I think it is funny how much hope people put in the presidents.

    I think that no matter who had the job, the US would be going through the wringer anyway.

  29. torrie-amos says:

    weird, per law he’s only been in charge six months, he probably spent a few months getting his troops in position…………the thing is most folks don’t listen, he’s said health care was a priority all along, for like since he got elected in 96, seriously he choose to not tinker with financial reform cause it is a nightmare, jeeze the banks are still on fumes and the pps of major indexes set a tone, you had six months of irrational volatilty……..they wanted to let the erractness subside, that decision can’t be criticized for the most part…………he also had iraq and afgan and other world issues on his plate, in a simple to do list scenario on reform he choose to put it aside for now………….problem is employment going higher and pretty much zero job creation, i’m sure they were hoping for better…………..imho, it’s just a plain tactical mistake, the fear of being branded a socialist by the republicans while 80% of the people were copacetic with reform and ASAP, no one disagree’s it needs to be done, so you sould just go do it……..period end of story, just do it, and he hasn’t……………mark my words cause it is coming……..he will be branded David Barack Dinkins, and continously be in a fight until he shows some anger and passion and takes control rather than trying to make everyone happy, happiness is our own responsibility………as the chief law dude he needs to show us what ones matter too him, he hasn’t done that

  30. Moss says:

    No doubt some momentum has been lost on this front, it will be interesting to see what becomes of all the state level legal activities. Surely some heads will roll from that. That hand-to-hand combat has just started. The heavy artillery can still be deployed once the trenches are decided.

  31. madman130 says:


    I agree 100% with your conclusion. I have given up on politicians since last election. Voted for Bob Barr last time around cause couldn’t trust any pubies and rats.

  32. wunsacon says:

    >> Oh please. We were told that this guy was a superman and could fix anything.

    That was a fiction created by GOPers to take the guy’s strength (his competency, especially relative to the GOP candidates) and turn it into a weakness (“he’s full of himself, so you should dislike him”).

    >> Never seen this bunch of incompetent boobs in my life.

    In your “life” or just not in the past “9 months”?

  33. wunsacon says:

    >> I have given up on politicians since last election.

    If we do that, the lobbyists win. Er, win bigger.

  34. beaufou says:

    Totally agree BR.
    No strategy, no will, no change…all talk.

  35. wunsacon says:

    On the topic, I can’t tell if this was (a) a plan like danm thinks or (b) a blunder like ignoring Richard Clarke to focus on missile defense. I kinda suspect it to be the latter.

    But, seriously, beyond finance, there are too many issues left over from the last administration and too many balls in the air. 9 months to fix a decade of mistakes? In some fields, fixing the problem takes as long as creating it.

  36. philipat says:

    One of the things we learn only by experience is the importance of FOCUS. Obama has no experience at actually managing anything, so it is perhaps understandable that he is trying to do too much. It doesn’t help that his advisors have differents agendas.

  37. Cursive says:

    Spot-on, BR.

  38. SheepGetSheared says:

    I do not understand how any reasonable person can assume good intentions from anyone or anything involved in the American political/economic/legal system.

    Paraphrasing someone who really understood the nature of power in a democracy, if voting really changed anything in the US it would be illegal. The only reason that we still can vote is because the people who really matter control the “serious” choices between one group of far right corporate whores and another group of merely right corporate whores.

    How many times do you have to get screwed before you ditch the panglossian worldview and accept the fact that the United States is designed and run to extract the maximum amount of money from the majority of its population regardless of the circumstances? Act accordingly or I am not interested in hearing complaints.

  39. [...] see. How many of you can sing “We Can Work It Out” and how many of you can tell me who Max Baucus is? (And I’m sorry, but “something to do with …” is not a valid start to [...]

  40. Marcus Aurelius says:

    Saving the economy was Obama’s first crisis, and it was handed to him as a hot potato. That he chose to support the structure of the system we had in place — and in doing so, rescue the very people who had put the structure in peril to begin with — was the poorest choice off of a menu of bad choices (in the end, it may have been the only realistic choice at the time, and under the circumstances).

    Healthcare is an entirely different crisis — one that has festered and turned malignant under “conservative” government (operating under the same the same principles, ideologies and policies that destroyed the economic structure). As proof of this statement, one need only compare the cost vs. quality, accessibility, and range of healthcare in other developed nations with their various and respective solutions to to providing basic medical care to their citizenry.

    It is also enlightening to track the growth and development of “healthcare” as an “industry” in the US. Insurance is not healthcare. We argue over the cost of healthcare, when in reality it’s the insurance companies and HMOs, not the actual cost of healthcare, that are driving costs up. It wasn’t that long ago that insurance companies charged premiums that were affordable enough to cover most citizens suffering most diseases (in fact, health insurance came with employment, at a cost that was manageable by the employer). What changed? The industry was deregulated (just like the banking industry).

    In the end, it’s all academic, anyway. Without borrowing, we can’t afford healthcare, or saving our banks. Without borrowing, we can’t afford our bloated military and the attendant and constant political need to create justification for its existence. Without borrowing, we can’t afford “higher” education (as with healthcare, the US gets a very poor ROI for money spent on education, both primary and secondary – our educational institutions will sell a degree to anyone with enough money, regardless of any other qualification). Hell, without borrowing, we can hardly pay the interest n our debt.

    The seed of our decline was planted in our national gut when we foolishly swallowed the “conservative” parasite (not really conservative at all, but, like most parasites, a mimic of the real and beneficial critter). Now, we’re living the disease. Deregulation and its attendant graft, corruption, cronyism and criminality, privilege without responsibility, lawlessness with impunity at the highest levels of business/government, and intractable debt (brought on by low or no taxes on the wealthiest, compounded by profligate government spending to benefit that same) are all manifestations of our infection.

    With our inability and unwillingness to manage our social structure by appropriate taxation and distribution of governmental resources, healthcare and economic recovery are moot points.

    Bruce in Tn: Since you’re wondering if the $3,800 fine will be a way to force people to pay for the “public” option, it’s somewhat disingenuous that you failed to note that the fine was proposed by Max Baucus, a devout Republican and a high priest of faux conservatism. If Mr. Baucus is looking for ways to pay for healthcare for the hoi polloi, he should, perhaps, consider turning his jaundiced eye and dishonest mind to some of the waste and criminality he himself helped spawn. For instance, the cost of the Iraq war would have paid for healthcare for every man, woman, and child in the US.

  41. Wes Schott says:

    …well stated Marcus,

    might add, re. healthcare and insurance companies – the Dr’s, and in particular “Family Practitioners that have a financial stake in the “testing clinics” to which they refer there clients, err patients…

  42. Marcus Aurelius says:

    Oh yeah, and another thing i should have added:

    “Conservatives,” under the mantle of “tort reform” would target jury awards to those injured by medical malpractice as being responsible for the increased cost of medical care, when it’s obvious that obscene corporate profits add far more to the cost of healthcare than any judgement for compensatory and/or punitive damages against a healthcare practitioner. Again, the conservatives tilt the playing field against the middle and lower classes, an insane segment of whom cheer for their own disenfranchisement.

  43. Marcus Aurelius says:

    Thanks, Wes.

  44. kansascitypothole says:

    Spot on, BR. A titanic miscalculation by 44. The worst kind of government waste.

  45. cvienne says:

    …“never waste a crisis”

    Exactly!… It seems the plan (by failing to reform Wall St.), is to sow the seeds to a series of continued crises…

    That ought to keep them busy thru 2012 & well beyond!

  46. CuriousCreature says:


    The other intensely troubling aspect of lack of accountability is the bleed over to the public. In my office there are two examples. One person just bought an H3 while her credit is still good and is walking away from her home. The second just bought a large foreclosed home and is walking away from the home that she’s in. The rest of us marvel at how this can continue to go on.

    The moral hazard is indeed a tragedy. Isn’t this stealing?

  47. By the way, this Ritholtz commentary is right on target. Obama will have no one to blame when the dems lose the mid-term elections and he gets bounced in 2012.

  48. constantnormal says:

    I don’t think there was any “error” at all in this, I believe it went down exactly the way it was planned to go — a huge flurry of action-without-results, followed by zero regulatory changes. The same thing will happen in the health care arena, except that things will be changed to make health care even more expensive and lucrative for it’s patrons. This is politics to please the lobbyists, right out in plain sight, nothing more. A masterful performance.

  49. [...] Posted by Chill on 09 Sep 2009 at 09:48 am | Hmm, hadn’t thought about this before. There was a narrow window to effect a full regulatory reform of Wall Street, the Banking Industry [...]

  50. SteveC says:

    I have to agree with you, Barry. I just proves how entrenched in our government are ex and current WS’ers. Not dealing with the criminals in the previous administration was another big miss.

  51. Marshall says:

    One fallacy I think that has been undermined is all the prattle we heard around the time of the election that in bad economic times, the scales fall from people’s eyes as they wake up from their bubble-induced illusions of financial security. Consequently, so goes the narrative, the electorate will support “progressive” candidates and policies.

    But in reality, the New Deal and support of FDR in the Depression were an historical anomaly. Most industrial countries at the time, to the extent they made a significant political shift from the status quo, went to the Right – sometimes the radical Right or outright fascism. Even now, I note that despite the severity of the recession, and all that implies for the Right’s fallacious economic nostrums, most major countries in Europe are moving rightward. Labour is almost certainly a goner in the next UK election; the SPD in Germany is weakening by the day; the Socialists in France are collapsing; and Berlusconi keeps getting more entrenched in Italy despite his bad personal qualities and questionable policies.

    The mental processes that a depressed economy imprints on the petit bourgeois (social fear of a loss of status and a sinking into the ranks of the despised lumpenproletariat) work in exactly the same way in the US, with the added ingredient of race to make the phenomenon even more vitriolic. Hence, in times of a grim economy, people are more likely to turn Right than Left; the reasons aren’t explicable in terms of the rational choice theory, but they make psychological sense if you bring status anxiety into the picture. When you add to that thousands of veterans returning embittered from a war “lost” by Obama (in the right-wing meta-narrative, none of it was Bush’s fault), you potentially have some pretty volatile ingredients – particularly as there are thousands of Blackwater-type mercenaries who lack the discipline and the ethics training of the regular military, and whose worst tendencies were encouraged by right wing fundamentalist corporate management. Maybe a stretch, but they could constitute the nucleus of a Freikorps.

  52. jdmckay says:

    I agree w/you completely. In fact, I’ve been saying all this since BO announced his econ team prior to inaugeration. This was utterly predictable.

  53. Marcus Aurelius says:

    Barry Ritholtz:

    Good points. Notice how the right wing no longer supports the GWOT (I’d feel sorry for the Dems if they weren’t so goddamned stupid — they fall for this shit every time). Notice how we (right or left) no longer talk about the cost, in lives or treasure, of these little escapades. Notice how the corporate/government hybrid — composed mainly of shit-talking chickenhawks — gives voice to the most ignorant and violent element among us (if they can get Cletus and Charlene riled up, they won’t have to put their own cowardly asses on the line).

  54. Marcus Aurelius says:

    Sorry, that last comment was in response to Marshall, not BR.

  55. ben22 says:


    Apologize this is OT but here is the Mish response to your unemployment chart and post yesterday:



    BR: I have been exchanging emails with Mish — I expect to have a response up this evening . . .

  56. danm says:

    Hence, in times of a grim economy, people are more likely to turn Right than Left; the reasons aren’t explicable in terms of the rational choice theory, but they make psychological sense if you bring status anxiety into the picture.
    But it’s very rational. When you are disenfranchised, feel your voice is not heard and when fighting for your rights is a lost cause, you will do whatever it takes to take away rights from other people around you (union busting, fighting against a social net…)

  57. Groty says:

    Your obsession with more regulation is astounding. The SEC, FED, Congressional oversight committees, and every other regulator failed us. How is that not obvious? [BR: 3 decades of radical deregulation, and you claim regulation failed us? While the SEC was gutted, the Fed was being led by a radical deregulator/Ayn Rand acolyte. WTF have you been looking at for these years ?]

    What you need to do is create incentives and penalties that alter the behavior of corporate boards and executives.

    Hold CEOs and boards liable by making the CEOs and directors put enough of their net worth in the company that if their company fails, they feel real pain.

    Reward them handsomely for success, but make the compensation and pensions paid in prior years subject to painful clawbacks if they drive thier company in the ditch this year. Allowing Chuck Prince to walk away with a multi-million dollar severance package for failure is absurd. Allowing Robert Rubin to keep the $100 million he’s taken from Citigroup shareholders over the years is idiotic.

  58. manhattanguy says:

    O should have waited for another year to introduce his Health reform bill. Instead he should have focused on cleaning up the Financial mess. I mean really cleaning up the mess, not just talk about it. He/congress gave too much power to Fed. Fed is doing everything they can do to artificially keep the markets up. But we are not fixing the underlying problems (debt overhang, Financial regulations). As long as we are rewarding the people who were responsible for this mess (IBankers, over borrowed consumers etc), we will continue to dig deeper and deeper. As much as I like O (although don’t agree with some of his policies), he might very well end up as a one termer. Franklin might jump on me on this one.

  59. Marcus Aurelius says:

    Groty Says:

    “Your obsession with more regulation is astounding.”

    The relationship between deregulation and decline tracks too closely to be coincidence. You write, “but make the compensation and pensions paid in prior years subject to painful clawbacks if they drive thier company in the ditch this year.” How is this not regulation?

  60. km4 says:

    Most excellent Barry !

    > Yes a colossal blunder that missed the best chance to clean up Wall Street in five generations.

    Instead with get a continued dysfunctional economic system that’s totally dependent on increasing debt, faux GDP growth, bubbles with MSM and politicians on both sides kicking the can down the road.

    This will not end well for majority of Americans who will be relegated to lower standard of living.

    I see a viable 3rd party coming into existence within next decade that hopefully can win ( shades of Ross Perot but one that can win over the inept bought and paid for fools we have in Congress today )

  61. rickety rick says:

    i wonder. 8 years of a greedy, self-serving “moderate” democrat. followed by 8 years of an incompetant “compassionate” republican. blend ‘em together and we now have a greedy, self-serving, incompetant liberal something or other in the driver’s seat.

    if there was just a political leader from as far away from washington, d.c. as possible. who was plain spoken with common sense. someone willing to take on and defeat the large corporate interests. someone who rooted out corruption in government. if only……..

  62. Cunning Linguist says:

    And how much responsibility do the folks who voted for Obama (and bought into his BS) actually bear?


    BR: As much as the folks who voted that fool “W” into office do . . .

  63. dsawy says:

    This was not a “tactical error.” No, this was an error of the “invading Russia during the winter” type.

    The only hope we have to turn the economy around before deflation really gets going is to clean up the mess in the banking system. Obama is not only kicking the can down the road, he’s helping fund a perpetuation of the status quo ante, and making the problem worse by making “to big to fail” into “even bigger than too big to fail.”

    As it is, the reason why Obama has shown no interest in pursuing a different course of action as Bush is that Obama comes from the same mindset and cohort as Bush: Ivy League graduate who thinks he’s oh-so-terribly-smart. These people infest the corridors of finance, government regulatory agencies, Congress (eg, Barney Frank) and DC think tanks, so there’s an entrenched group-think that refuses to make any real and substantive change that would upset the comfortable existence that these parasites have created for themselves.

    The push for “healthcare reform” is naught but a distraction, a tactic akin to Rockafeller handing out dimes to street urchins.

  64. cvienne says:

    I suppose it’s wishful thinking, but Obama still has the opportunity to break stride here and set his sights on doing everything you suggest BR…

    We’ll just call the first 7 months a “rookie mistake”… It happens…

    O?, Rahm?… are you all listening here? Don’t make Cuomo go it alone on this!

  65. Mannwich says:

    And they’re fast losing credibility with SUPPORTERS in the process. Not good. If you’re going to alienate a group, it shouldn’t be your supporters.

  66. Greg0658 says:

    a tremendous thread going .. lots of views pro & con to the direction needed on 1/21/09 (1st day after the party) .. I was luke warm about getting in the thread till Marshall’s post:
    that .. was .. um .. what library room shelf did those thoughts come from .. or what classroom curriculum .. Kings&Queens 1201?

    should leave more than that .. the hallabaloo over yesterdays speech to the children .. we are fighting for power big time in the good ole USA .. comes from desperation with failing systems .. now that the question is raised and pov’s are coming in fast and furious .. the die was cast .. we’ll see what comes our way in the new fiscal year of 2010 in a month or so

  67. torrie-amos says:

    dsawy, good anaolgy on russia, the only thing we don’t know is what bernanker geitner etc. keep telling him, remember all countries are re-inflating not just us, perhaps bernanke does have some plan to get out of dodge, which i doubt…………the reason why most us are po’d is because he’s talked a tough game from time too time, yet, done nothing tough or heroic, taken a stance, to basically do something like change we can believe in………..it’s a government bubble plain and simple and too be part of it is disingenuous, which he did not come across as……..right now, i’m giving him the benefit of the doubt cause i’m not in the room, yet, he better start he better start SHOWING SOME STRENGTH or he will be branded weak, which is what the other party wants

  68. Groty says:

    My point is that deregulation, per se, isn’t the problem. It’s the perverse incentive structure, where excutives and boards feel no pain for failure, and in many cases are rewarded with robust severance packages for failure, that is the problem.

    If the incentives/penalities are right, then everything else (i.e., excessive risk taking, excessive leverage, etc.) should fix itself.

    I don’t see how bringing back an 80 year old regulation, Glass-Steagal, solves anything.

  69. mkkby says:


    Your mistake is in believing Obama wanted change. That was campaign rhetoric. It was always business as usual. And as you said, the lobbyists own Congress and this nation lock, stock and barrel.

  70. hopeImwrong says:

    Anyway, reforms would only be bad for this awesome bull market. So we can’t do financial reforms.

  71. constantnormal says:

    It really doesn’t matter — unless you care about the size of the impact crater. An economic “system” is a force of nature, not a mechanism of Man’s design. All that we can do with out regulations and restrictions on the types of activities is to attempt to channel the flow of that river. When fools along the river dam it to create more shoreline and thus more “waterfront property”, it is a folly that is doomed to failure. Reinforcing the dams will work for a time, but only a brief period. Eventually the dam fails and the rushing waters destroy everything.

    So it is with the criminal practices in the financial industry and the health care industry. If the pols will not act to prevent the artificial manipulation of these tributaries, they will fail, with a terrible destruction upon everyone, at some point in the not-too-distant future.

    In our case, the pols (Republicon and Demoncat alike) are actively working very hard to ensure that their benefactors, the lobbyists and the corporate citizens they represent (these would be the class A citizens, who vote with $$$, not the class B citizens who vote with ballots), are taking the maximum benefit from the efforts of the class B citizens (for that is where the wealth comes from — not the HFT or paper-shuffling of the fund managers and banksters).

    Stay liquid, stay nimble, stay healthy. You are on your own.

  72. Thor says:

    Agree with many of the posts in this thread. Six months is hardly enough time to judge a presidents entire term – does anyone remember what happened in the first six months of GW’s presidency? Was he defined by those six month? Or was he defined by 9/11, or Iraq? A lot can happen in the next three and a half years.

    That said, I’d give him a D for his first six months. If he keeps this up, and if he drops the ball on health care reform then he’s lost my vote next time around.

    Also, let’s keep in mind that the President does not live in a vacuum and contrary to right-wing propaganda he is not a dictator. Obama cannot change all the laws himself, re-regulate the financial industry, and punish those who need punishing. To do all of this takes congress as well and everyone posting here knows full well that this goes far beyond Obama failing to act – he may very well have been planning to act until the powers that be in congress told him that there would not be the political will to pass any meaningful legislation.

    We may also be missing The Big Picture here. Who’s to say Obama is not allowing the re-inflation of the bubble to move forward because he knows that if a second bubble pops within the next year or so he’ll have more than enough support in congress to make all the changes he wants.

  73. cvienne says:


    “perhaps bernanke does have some plan to get out of dodge”

    Bernanke was the one that denied we were going into Dodge in the first place when he suggested that subprime was “contained” many moons ago…

  74. cvienne says:


    “Who’s to say Obama is not allowing the re-inflation of the bubble to move forward because he knows that if a second bubble pops within the next year or so he’ll have more than enough support in congress to make all the changes he wants.”

    Well that would be TRULY evil now wouldn’t it?

  75. cvienne says:

    …I mean, Thor…

    I’ve considered him arrogant and a bit naive all along, but EVIL never really entered my mind…

  76. Cunning Linguist says:

    @ Marcus: Again, the conservatives tilt the playing field against the middle and lower classes, an insane segment of whom cheer for their own disenfranchisement.

    You throw around terms too broadly:
    “tort reform” would help cut out extortion and economic theft by attorneys. They produce very little that benefits society.
    “deregulation” can help free up productive economic behavior. No question we have too much destructive regulation which throttles our economy. It’s a question of what is and how it’s “deregulated.” But you and Barry who loudly decry “radical deregulation” are helping the bureaucracies, and not helping towards growing the economy…

  77. Thor says:

    Cvienne – I know, I was just playing into the whole conspiracy theory :-)

  78. cvienne says:


    A closet Conspiracy Theorist?


  79. [...] Tactical Error: Health Care vs Finance Regulatory Reform | The Big Picture "There was a narrow window to effect a full regulatory reform of Wall Street, the Banking Industry and other causes of the collapse. Instead, the WH tacked in a different direction top pursue healthcare reform. [...]

  80. torrie-amos says:

    cv, imho ben is like al, aloof and a black and white thinker, do i think he has a plan to get out of dodge, i think he thinks he does and it is the only correct and right one……….does obama have a choice, not really he fears touching the fed, and summers is his advisor………30-40-1 leverage took down the banks, to think the government can do it better is ludicrous, not because they are incompetent, just cause no one can handle that leverage, no one

  81. wally says:

    Money talks. The peasants walk.

  82. constantnormal says:

    The best conspiracy theorists are those who live in the aluminum-foil-lined sanctity of their closets. :-)

  83. Seth says:

    Good point, Barry. One minor quibble. The Tea Party game would have played out with a slightly different script, that’s all. The screaming opposition is a combination of professional astro-turf and traditional paranoids. They were going to do their level best to destroy the administration regardless of specific policy actions. Obama literally could be a white southerner who acted exactly as Ronald Reagan would have, and still get attacked by these people because he has a ‘D’ after his name.

  84. constantnormal says:


    “Money talks. The peasants walk.”

    Almost right … but incomplete …

    Money talks. The peasants walk, carrying those with the money on their shoulders.

  85. hopeImwrong says:

    Aluminum foil is too thin, it’s really not effective. I prefer copper. It has better sheilding properties, and investment value is superior to aluminum foil. Also, hat’s are not effective, you need a helmet with a full face shield, with the smallest eye holds you can manage with. Small holes allow only the high frequencies in.

  86. cvienne says:


    Interesting points Seth…

    No, not really anything much you said after conveniently lumping everyone with a legitimate gripe into the “screaming opposition” category…

    What I’m referring to is your use of the word “astro-turf”…

    I have now found the perfect metaphor for the “green shoots” in the economy!

  87. cvienne says:

    …unless you’re Boise State

  88. huxrules says:

    I was just thinking about this today. O going after healthcare instead of the banks was analagous to Bush going after Iraq instead of Saudi Arabia. Not that I don’t think that we need healthcare reform- I hope it works but the “19 hijackers” came from wall street.

  89. [...] Is the moment for financial reform past?  (Big Picture) [...]

  90. sunsetbeachguy says:

    Borrowed from the Oil Drum but equally applicable to this post:

    Why do we generally have such low quality politicians when we need the very best and most strategic?

    “Now, there’s one thing you might have noticed I don’t complain about: politicians. Everybody complains about politicians. Everybody says they suck. Well, where do people think these politicians come from? They don’t fall out of the sky. They don’t pass through a membrane from another reality. They come from American parents and American families, American homes, American schools, American churches, American businesses and American universities, and they are elected by American citizens.

    This is the best we can do folks. This is what we have to offer. It’s what our system produces: Garbage in, garbage out.

    If you have selfish, ignorant citizens, you’re going to get selfish, ignorant leaders. Term limits ain’t going to do any good; you’re just going to end up with a brand new bunch of selfish, ignorant Americans.

    So, maybe, maybe, maybe, it’s not the politicians who suck. Maybe something else sucks around here… like, the public. Yeah, the public sucks.

    There’s a nice campaign slogan for somebody:

    ‘The Public Sucks. Fuck Hope.’”
    – George Carlin

    We miss your wisdom, George.

  91. hopeImwrong says:

    Healthcare could be handled so easily by allowing anyone to join the ranks of medicare, and charging a premium based on the reported income on the tax returns. But, that wouldn’t satisfy the special interests. After all, somehow this has to be turned into a payoff to the big money contributors. Whereas, financial regulation would be the opposite of a payoff ot big contributors. So, it actually makes perfect sense.

  92. Hi Barry,

    On June 18, 2009, you penned a great response to the Obama Regulatory plan:

    Obama Reform Plan Fails to Fix Whats Broken

    After seeing your article, I jotted down some of my own thoughts that are very much in the same spirit as your article this morning:

    Losing Political Capital

    I hope you don’t mind me including a quote here:

    “You are on the verge of losing whatever political capital you had coming into office due to your refusal to acknowledge that the people you are relying on for economic policy are the very people who are responsible for getting us into this situation. Greenspan, Bernanke, Paulson, and now Geithner (and Summers) all continue to fail to see the causes of the crisis. As a consequence, current proposed regulatory reform is bound to fail yet again.

    At this point, the rapid loss of confidence in both Geithner and Bernanke are weakening your ability to push your agenda in other critical matters. You must do something to remove them both or you will imperil your potential to accomplish lasting and necessary change.”

    So much for that idea…

    The lost opportunities are a real shame. I wish they listened to you.

  93. DeDude says:

    Look at the problem they have in the fight for health care reform. Affordable health care, with a public option to make sure that prices are kept down, is pretty much in everybodies interest. The only ones realy hurt by such a plan are the CEO’s of private health insurance companies who may no longer be able to suck their $40 million annual bonuses out of the system and still stay competitive. Yet Wall Steet banded together, ordered their media labdogs into action and the whole thing is in trouble. All over the country you got Joe 6 packs dropping their pants, greasing their dum a$$es, and saying “come and take me Wall Street before big bad government can provide me with better care for lower prices”.

    I think it is pretty naïve to think that the administration has any chance of getting any meaningful reform of Wall Street past congress. It would be a serious threat to the $40 million annual bonuses of ALL of our corporate masters. You would immediately get an all out campaign from all the corporate media to label such reform as soci@lism, and little houswifes from rural Ohio would be on the screens 24 hours/day crying about what “they” (this terrible black man and his soci@list friends) are doing to “our” country.

    The administration did right by starting with health care as the test of how much control corporate American has over the country, and the information, and the message. It turns out that right after a major royal f*cking by Wall Street, the people are still so afraid of the only entitiy that can protect them (we the people) and of Wall Streets invented buggy men (“black male” and Soci@lism), that they are willing to take another major royal f*cking from Wall Street, in form of continued rising prices going straight into the pockets of those same leaches.

    Now the administration know that they cannot even win the little fights, so they will hopefully be smart enough to not take the big fight head on. They should realize that rather than big comprehensive reform, that can easily be distorted and cherry picked for sloppy wording of one little sentence in a 1000 page document, they need to keep it simple. Reform has to come by 100 little incremental proposals that can be sold easily and cannot be distorted by Glen Beck or other little Wall Street slaves in the corporate media. Anybody that vote against any of these proposals (like a 90% tax on bonuses over $ 1 mill) can then be attacked in their primary or general elections as the Wall Steet slaves they are.

  94. farmera1 says:

    A couple of points

    1) Deleveraging was going to be fugly no matter who is in charge. The time to deal with the gross problems in this country is probably already past.

    2) People get the kind of government they deserve. When dishonesty is the standard for the citizen, who expects an honest/competent government. Won’t happen.

    Think about it.

  95. dss says:


    Great response. The greed and corruption of both parties is now coming home to roost. All of it has it’s roots in the financing of campaigns, big money lobbyists and the open pockets of those who support that system.

    It is the reason why inexplicable decisions and policy positions are taken. Money and Power.

  96. hourglass says:

    Got your back on this one, Barry. No matter what political party is in the White House “change” is controlled by those who control the money supply. Politics is a distraction to keep us from focusing on the handlers of our presidents. We’ve all talked about changing it, how many years have we done that, and now we’re almost $12 trillion in debt while the bankers still get bonuses. Millions of Americans out of work, less jobs being created, millions of home foreclosures while the bankers still get bonuses.

  97. DeDude says:

    The idea that “both parties” are [whatever bad] is another Wall Street talking point. The fact is that 95% of the GOP and a little less than half of Democrats are Wall Street slaves. However, although that means that any direct rebellion against our corporate masters and their interests are unthinkable, it does not mean that it makes no difference which party is in power. Anybody with half a brain can look at the legislation passed by each of the parties and recognize that there is a clear difference in the amount of legislation serving the people passed by each party. However, it serves Wall Street perfectly to get people to think that there is not difference, because then they are more likely to vote for the party that always serve the people on a silver platter to Wall Street. Our corporate masters have learned from our previous British masters – divide and conquer.